ETF primary-listing venue BATS merges with Direct Edge

BATS Global Markets, owner of the BATS Exchange, and Direct Edge have agreed to merge, creating the second-largest stock exchange in the US in terms of equity trading volumes.

Joe Ratterman, CEO, BATS Global Markets.

The deal is expected to close in the first half of 2014, subject to regulatory approvals. The merged entity will operate under the BATS Global Markets name.

The current CEO of BATS, Joe Ratterman, will head up the combined company while William O’Brien, his counterpart at Direct Edge, will become President.

The combined company will use BATS’ proprietary technology and will be headquartered in the Kansas City area, with additional offices in Jersey City, New York and London.

All four US equity exchanges operated by BATS and Direct Edge – the BATS BZX and BYX Exchanges and the Direct Edge EDGX and EDGA Exchanges – will remain in operation under the agreement, as will the firm’s US equity options market and BATS Chi-X Europe, its European stock exchange platform.

Commenting of the deal, Ratterman said: “This agreement is an important milestone for the US equities market and other markets around the globe as it will combine two organisations that have been innovative in creating a more competitive marketplace to benefit all investors.”

O’Brien added: “Direct Edge and BATS were both founded on a commitment to create an optimal trading experience for a diverse member base, from retail investors to broker-dealers to institutions. Together, the best of both organisations will work to further improve how the world trades, consumes market data, and accesses capital markets.”

Recently, BATS has made inroads into the exchange-traded funds (ETFs) primary-listings game, winning its first mandate in January 2012 with the launch of the iSharesMSCI Norway Capped Investable Market Index ETF (ENOR) from ETF giant iShares, a launch which was quickly followed up by eight other country-specific equity ETFs from the provider. Since then, seven additional iShares ETFs have been listed on the exchange, including fixed income and multi-asset products.

ProShares, the alternatives ETF specialist, has also shown appetite for adopting the exchange as a venue for primary listings. In December 2012 it debuted the innovative ProShares Merger ETF (MRGR) on the exchange and has subsequently listed two further products.

In Europe, the company’s BATS Chi-X Europe platform was recently granted Recognised Investment Exchange status by the UK’s Financial Conduct Authority. This new status means the company will be authorised to operate a Regulated Market for primary listings and thus compete against mainstream European exchanges, such as the London Stock Exchange, NYSE Euronext and Deutsche Borse, for primary listings of ETFs here in Europe.

As things stand, the total number of primary ETF listings on the US BATS Exchange remains minuscule, while in Europe no ETFs have yet taken this route to market. However, the company’s combined market share and new status as the number two player for equity trading volumes are only likely to improve its chances of winning new ETF listings.